Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Order Granting Accelerated Approval to Proposed Rule Change and Amendments No. 1, 2 and 3 Thereto Relating to the Criteria for Securities that Underlie Options Traded on the Exchange, 66999-67004 [E6-19418]

Download as PDF Federal Register / Vol. 71, No. 222 / Friday, November 17, 2006 / Notices listed securities of at least $80 million to be eligible for initial listing. 2. Statutory Basis Nasdaq believes that the proposed rule change, as amended, is consistent with the provisions of Section 6 of the Act,8 in general, and with Section 6(b)(5) of the Act,9 in particular, in that the proposal is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. Nasdaq believes that the proposed rule change, as amended, clarifies Nasdaq’s rules. B. Self-Regulatory Organization’s Statement on Burden on Competition Nasdaq does not believe that the proposed rule change, as amended, would result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the proposal does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days after the date of the filing, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, the proposed rule change, as amended, has become effective pursuant to Section 19(b)(3)(A) of the Act 10 and Rule 19b–4(f)(6) thereunder.11 Nasdaq requests that the Commission waive the 30-day operative period under U.S.C. 78f. U.S.C. 78f(b)(5). 10 15 U.S.C. 78s(b)(3)(A). 11 17 CFR 240.19b–4(f)(6). As required by Rule 19b–4(f)(6)(iii) of the Act, Nasdaq provided the Commission with written notice of its intent to file the proposed rule change, along with a brief description of the text of the proposed rule change, at least five business days prior to the date of the filing of the proposed rule change. jlentini on PROD1PC65 with NOTICES 9 15 VerDate Aug<31>2005 16:31 Nov 16, 2006 Jkt 211001 IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as amended, is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–NASDAQ–2006–044 on the subject line. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. 8 15 Rule 19b–4(f)(6)(iii).12 The Commission believes that it is consistent with the protection of investors and the public interest to waive the 30-day operative delay,13 because the proposal is consistent with the treatment afforded business development companies by other markets.14 At any time within 60 days of the filing of such proposed rule change, as amended, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.15 Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NASDAQ–2006–044. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule 12 17 CFR 240.19b–4(f)(6)(iii). purposes only of waiving the 30-day operative delay of this proposal, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 14 See Section 102.04 of the New York Stock Exchange Listed Company Manual. 15 For purposes of calculating the 60-day period within which the Commission may summarily abrogate the proposed rule change under Section 19(b)(3)(C) of the Act, the Commission considers the period to commence on November 2, 2006, the date Nasdaq filed Amendment No. 1 to the proposed rule change. See Section 19(b)(3)(C) of the Act, 15 U.S.C. 78s(b)(3)(C). 13 For PO 00000 Frm 00093 Fmt 4703 Sfmt 4703 66999 change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission’s Public Reference Room. Copies of such filing also will be available for inspection and copying at the principal office of Nasdaq. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–NASDAQ–2006–044 and should be submitted on or before December 8, 2006. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.16 Nancy M. Morris, Secretary. [FR Doc. E6–19424 Filed 11–16–06; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–54730; File No. SR– NYSEArca–2006–04] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Order Granting Accelerated Approval to Proposed Rule Change and Amendments No. 1, 2 and 3 Thereto Relating to the Criteria for Securities that Underlie Options Traded on the Exchange November 9, 2006. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on April 11, 2006, NYSE Arca, Inc. (‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. NYSE Arca filed Amendment No. 1 to the proposed rule change on August 18, 2006.3 NYSE Arca filed Amendment No. 2 to the proposed 16 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 Amendment No. 1 replaced the original filing in its entirety. 1 15 E:\FR\FM\17NON1.SGM 17NON1 67000 Federal Register / Vol. 71, No. 222 / Friday, November 17, 2006 / Notices rule change on October 17, 2006.4 NYSE Arca filed Amendment No. 3 to the proposed rule change on November 6, 2006.5 The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons and is approving the proposal on an accelerated basis. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend NYSE Arca Rules 5.3(g), 5.6(k) and 6.39(a), as well as the Commentary to NYSE Arca Rules 11.3 and 11.16, to enable the initial and continued listing and trading on the Exchange of options on shares or other securities (‘‘Exchange-Traded Fund Shares’’ or ‘‘Fund Shares’’) that represent an interest in a specified non-U.S. currency. The text of the proposed rule change is below. Additions are italicized, deletions are [bracketed]. Rules of the NYSE Arca, Inc. RULE 5 OPTION CONTRACTS TRADED ON THE EXCHANGE Section 2. Underlying Securities * * * * * jlentini on PROD1PC65 with NOTICES Rule 5.3—Criteria for Underlying Securities (a)–(f)—No change. (g) Exchange-Traded Fund Shares. Securities deemed appropriate for options trading shall include shares or other securities (‘‘Exchange-Traded Fund Shares’’ or ‘‘Fund Shares’’) that are [principally] traded on a national securities exchange [or through the facilities of a national securities association] and are defined as an ‘‘NMS stock’’ in Rule 600(b)(47) of Regulation NMS [reported as a national market security], and that (i) represent an interest in a registered investment company organized as an open-end management investment company, a unit investment trust or a similar entity which holds securities constituting or otherwise based on or representing an investment in an index or portfolio of securities, or (ii) represent interests in a trust that holds a specified non-U.S. currency deposited with the trust when aggregated in some specified minimum number may be surrendered to the trust 4 Amendment No. 2 corrected certain minor, inadvertent omissions to the changes proposed in Amendment No. 1. In Amendment No. 2, NYSE Arca also clarified that Fund Shares must be traded on a national securities exchange pursuant to NYSE Arca Rule 5.3(g). 5 Amendment No. 3 clarified the proposal, as earlier amended, and corrected certain minor, inadvertent omissions to the changes proposed in Amendments No. 1 and 2. VerDate Aug<31>2005 16:31 Nov 16, 2006 Jkt 211001 by the beneficial owner to receive the specified non-U.S. currency and pays the beneficial owner interest and other distributions on the deposited non-U.S. currency, if any, declared and paid by the trust (‘‘Funds’’); provided: (1) (A) the Exchange-Traded Fund Shares meet the criteria and guidelines for underlying securities set forth in Rule 5.3(a) and (b); or (B) the Exchange-Traded Fund Shares must be available for creation or redemption each business day in cash or in kind from or through the issuing trust, investment company or other entity [the investment company] at a price related to the net asset value. In addition, the issuer [investment company] is obligated [shall provide that] to issue Fund Shares in a specified aggregate number [fund shares may be created] even though some or all of the investment assets [securities] needed to be deposited have not been received by the issuer [unit investment trust or the management investment company], provided the authorized creation participant has undertaken to deliver the investment assets [shares] as soon as possible and such undertaking has been secured by the delivery and maintenance of collateral consisting of cash or cash equivalents satisfactory to the issuer of Fund Shares [fund] which underlie[s] the option as described in the Fund Shares’ [fund or unit trust] prospectus; and (2) (A) any non-U.S. component securities (including fixed-income) in an [the] index or portfolio of securities on which the Fund Shares are based that are not subject to comprehensive surveillance agreements do not in the aggregate represent more than 50% of the weight of the index or portfolio; (B) component securities (including fixed-income) of an index or portfolio of securities on which Fund Shares are based for which the primary market is in any one country that is not subject to a comprehensive surveillance agreement do not represent 20% or more of the weight of the index; [and] (C) component securities (including fixed-income) of an index or portfolio of securities on which Fund Shares are based for which the primary market is in any two countries that are not subject to comprehensive surveillance agreements do not represent 33% or more of the weight of the index; and[.] (D) for Funds that hold a specified non-U.S. currency deposited with the trust, the Exchange has entered into an appropriate comprehensive surveillance PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 sharing agreement with the marketplace or marketplaces with last sale reporting that represent(s) the highest volume in derivatives (options or futures) on the specified non-U.S. currency, which are utilized by the national securities exchange where the underlying Funds are listed and traded. (h)—No change. * * * * * Rule 5.6—Withdrawal of Approval of Underlying Securities (a)–(j)—No change. (k) Absent exceptional circumstances, securities initially approved for options trading pursuant to Rule 5.3(g) (such securities are defined and referred to in that [Commentary] rule as ‘‘ExchangeTraded Fund S[s]hares’’ or ‘‘Fund Shares’’) shall not be deemed to meet the Exchange’s requirements for continued approval, and the exchange shall not open for trading any additional series of option contracts of the class covering such Exchange-Traded Fund Shares, whenever the Exchange-Traded Fund Shares are delisted as provided in subparagraph (b)(5) or [and] trading in the Fund Shares is [suspended] halted on their primary market [a national securities exchange, or the ExchangeTraded Fund Shares are no longer traded as national market securities through the facilities of a national securities association]. In addition, the Exchange shall consider the suspension of opening transactions in any series of options of the class covering ExchangeTraded Fund Shares in any of the following circumstances: (1) In accordance with the terms of paragraphs 1 through [7]4 of Rule 5.6(b) in the case of options covering Exchange-Traded Fund Shares when such options were approved pursuant to Rule 5.3(g)(1)(A). (2) In the case of options covering Exchange-Traded Fund Shares approved pursuant to Rule 5.3(g)(1)(B), [F]following the initial twelve-month period beginning upon the commencement of trading of the Exchange-Traded Fund Shares on a national securities exchange [or as national market securities through the facilities of a national market association] and are defined as an ‘‘NMS stock’’ in Rule 600(b)(47) of Regulation NMS, there are fewer than 50 record and/or beneficial holders of such Exchange-Traded Fund Shares for 30 or more consecutive trading days; (3) The value of the index or portfolio of securities or non-U.S. currency on which the Exchange-Traded Fund Shares are based is no longer calculated or available; or E:\FR\FM\17NON1.SGM 17NON1 Federal Register / Vol. 71, No. 222 / Friday, November 17, 2006 / Notices (4) Such other event shall occur or condition exist that in the opinion of the Exchange makes further dealing in such options on the Exchange inadvisable. (l)—No change. Commentary: .01—No change. * * * * RULE 6 * OPTIONS TRADING Rule 6.39—Securities Accounts and Orders of Market Makers (a) Identification of Accounts [Upon Request]. A Lead Market Maker in the Fund Shares, as defined in Rule 5.3(g), is obligated to conduct all trading in the Fund Shares in account(s) that have been reported to the Exchange. In addition, [I]in a manner prescribed by the Exchange, each Market Maker shall [upon request] file with the Exchange a list identifying all accounts for stock, options, non-U.S. currency, non-U.S. currency options, futures or options on futures on such currency, or any other derivatives based on such currency and related securities trading in which the Market Maker may directly or indirectly engage in trading activities or over which the Market Maker exercises investment discretion. No Market Maker shall engage in stock, options, non-U.S. currency, non-U.S. currency options, futures or options on futures on such currency, or any other derivatives based on such currency or related securities trading in an account that has not been reported pursuant to this Rule. (b)—No change. Commentary: .01—No change. * * * * RULE 11 * BUSINESS CONDUCT jlentini on PROD1PC65 with NOTICES Rule 11.3—Prevention of the Misuse of Material, Nonpublic Information (a)–(b)—No change. Commentary: .01 For purposes of Rule 11.3, conduct constituting the misuse of material, non-public information includes, but is not limited to, the following: A. Trading in any securities issued by a corporation or Funds, as defined in Rule 5.3(g), or a trust or similar entities, or in any related securities or related options or other derivative securities, or in any related non-U.S. currency, nonU.S. currency options, futures or options on futures on such currency, or any other derivatives based on such currency while in possession of material, non-public information concerning that issuer; or VerDate Aug<31>2005 16:31 Nov 16, 2006 Jkt 211001 B. Trading in a security or related options or other derivative securities, or in any related non-U.S. currency, nonU.S. currency options, futures or options on futures on such currency, or any other derivatives based on such currency while in possession of material non-public information concerning imminent transactions in the above [security or related securities]; or C. Disclosing to another person or entity any material, non-public information involving a corporation or Funds or a trust or similar entities whose shares are publicly traded or an imminent transaction in an underlying security or related securities or in the underlying non-U.S. currency, or any related non-U.S. currency options, futures or options on futures on such currency, or any other derivatives based on such currency for the purpose of facilitating the possible misuse of such material, non-public information. .02–.03—No change. * * * * * Rule 11.16—Books and Records (a)—No change. Commentary: .01—No change. .02 In addition to the existing obligations under Exchange rules regarding the production of books and records, a Lead Market Maker in nonU.S. currency, non-U.S. currency options, futures or options on futures on such currency, or any other derivatives based on such currency, shall make available to the Exchange such books, records or other information pertaining to transactions in the applicable nonU.S. currency, non-U.S. currency options, futures or options on futures on such currency, or any other derivatives on such currency, as may be requested by the Exchange. (b)—No change. * * * * * II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the NYSE Arca included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item III below. The NYSE Arca has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 67001 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of this proposed rule change is to amend NYSE Arca Rules 5.3(g), 5.6(k) and 6.39(a), as well as the Commentary to NYSE Arca Rules 11.3 and 11.16, to enable the initial and continued listing and trading on the Exchange of options on shares of exchange-traded funds (‘‘ETFs’’) that hold a specified non-U.S. currency. The proposed rule change is based on the rule proposal of the International Securities Exchange (‘‘ISE’’), which was approved by the Commission.6 Currently, the term ‘‘Exchange-Traded Fund Shares,’’ as defined under NYSE Arca Rule 5.3(g), requires that the investment assets held by a registered investment company organized as an open-end management investment company, a unit investment trust or a similar entity consist of securities constituting or otherwise based on or representing an investment in an index or portfolio of securities. As proposed, amended NYSE Arca Rule 5.3(g) would also permit the investment assets to consist of a trust that holds a specified non-U.S. currency deposited with the trust. In particular, the proposed amendment to NYSE Arca Rule 5.3(g) would permit the Exchange to list options on the euro shares (‘‘Shares’’ or ‘‘Euro Shares’’) 7 issued by the Euro Currency Trust (‘‘Trust’’) 8 and other similarly structured currency-based products, which function as an ETF, whose Shares reflect the price of a particular foreign currency and whose assets are limited to a particular foreign currency. The Shares may be purchased from the Trust only in one or more blocks of 50,000 Shares, as described in the prospectus under ‘‘Creation and Redemption of Shares.’’ A block of 50,000 shares is called a Basket. The Trust issues Shares in Baskets on a continuous basis to certain authorized participants (‘‘Authorized Participants’’) as described in the prospectus under ‘‘Plan of Distribution.’’ Each Basket, when created, is offered and sold to an Authorized Participant at a price in euro 6 See Securities Exchange Act Release No. 54087 (June 30, 2006), 71 FR 38918 (July 10, 2006) (SR– ISE–2005–60). 7 The Shares trade on the New York Stock Exchange (‘‘NYSE’’) under the symbol ‘‘FXE.’’ The Shares may also trade in other markets. 8 The Exchange notes that the Trust is not a registered investment company under the Investment Company Act of 1940 (the ‘‘1940 Act’’) and is not required to register under the 1940 Act. E:\FR\FM\17NON1.SGM 17NON1 67002 Federal Register / Vol. 71, No. 222 / Friday, November 17, 2006 / Notices jlentini on PROD1PC65 with NOTICES equal to the net asset value (‘‘NAV’’) for 50,000 Shares on the day that the order to create the Basket is accepted by the Trustee. The Exchange believes that permitting options on foreign currency-based Fund Shares to be traded on the Exchange is consistent with the Commission’s recent approval order of a rule change filed by the NYSE to list and trade the Shares.9 This rule change to NYSE Arca’s listing criteria for Fund Shares is intended to provide appropriate listing standards for options on the Shares and similar types of foreign currency-based Fund Shares that may be listed in the future. For options trading, the underlying Fund Shares will continue to need to satisfy the listing standards in NYSE Arca Rule 5.3(g). Specifically, the Fund Shares must be traded on a national securities exchange and must be an ‘‘NMS stock’’ as defined in Rule 600(b)(47) of Regulation NMS.10 The Fund Shares must also either: (1) Meet the criteria and guidelines for underlying securities set forth in NYSE Arca Rule 5.3(a) and (b); or (2) be available for creation or redemption each business day in cash or in kind from or through the issuer at a price related to NAV, and the issuer is obligated to issue Fund Shares in a specified aggregate number even though some or all of the investment assets needed to be deposited have not been received by the issuer, subject to the condition that the authorized creation participant has undertaken to deliver the investment assets as soon as possible, and such undertaking is secured by the delivery and maintenance of collateral consisting of cash or cash equivalents satisfactory to the issuer, as described in the prospectus. Proposed NYSE Arca Rule 5.3(g)(2)(D) provides that ‘‘for Funds that hold a specified non-U.S. currency deposited with the trust, the Exchange has entered into an appropriate comprehensive surveillance sharing agreement with the marketplace or marketplaces with last sale reporting that represent(s) the highest volume in derivatives (options or futures) on the specified non-U.S. currency, which are utilized by the national securities 9 See Securities Exchange Act Release No. 52843 (November 28, 2005), 70 FR 72486 (December 5, 2005) (SR–NYSE–2005–65). 10 In light of the implementation of certain aspects of Regulation NMS, the Exchange hereby seeks to amend NYSE Arca Rule 5.3(g) to reflect that Exchange-Traded Fund Shares must be NMS stocks as defined in Rule 600(b)(47) of Regulation NMS instead of ‘‘national market’’ securities. The Exchange also seeks to amend NYSE Arca Rule 5.6(k), the maintenance rule for Exchange-Traded Fund Shares, to delete obsolete references contained therein. VerDate Aug<31>2005 16:31 Nov 16, 2006 Jkt 211001 exchange where the underlying Funds are listed and traded.’’ The Exchange is also proposing to make other conforming changes to the text of NYSE Arca Rule 5.3(g) to reflect the proposed broadened definition of Fund Shares. Under NYSE Arca Rule 5.6(k), the Exchange will not open for trading any additional series of option contracts of a class covering Fund Shares whenever the Fund Shares are delisted or trading in the Fund Shares is halted on the primary market. In addition, the Exchange will consider the suspension of opening transactions in any series of options of the class covering Fund Shares as follows: (1) Following the initial twelve-month period beginning upon the commencement of trading of the Fund Shares, there are fewer than 50 record and/or beneficial holders of the Fund Shares for 30 or more consecutive trading days; (2) the value of the nonU.S. currency is no longer calculated or available; or (3) such other event occurs or condition exists that in the opinion of the Exchange makes further dealing on the Exchange inadvisable. The Exchange represents that the expansion of the types of investments that may be held by a Fund Share under NYSE Arca Rule 5.3(g) will not have any effect on the rules pertaining to position and exercise limits 11 or margin.12 The Exchange is also proposing to amend Commentary .01 to NYSE Arca Rule 11.3 to require an OTP Holder or OTP Firm to establish, maintain, and enforce written policies and procedures designed to prevent the misuse of any material nonpublic information it might have or receive in a related security, option, or derivative security or in the applicable non-U.S. currency, non-U.S. currency options, futures or options on futures on such currency, or any other derivatives based on such currency. Finally, the Exchange is proposing to amend NYSE Arca Rule 6.39(a) and to add Commentary .02 to NYSE Arca Rule 11.16 to require that market makers handling options on Fund Shares provide the Exchange with all necessary information relating to their trading in the applicable non-U.S. currency, nonU.S. currency options, futures or options on futures on such currency, or any other derivatives based on such currency. In addition, proposed NYSE Arca Rule 6.39(a) would prohibit market makers from engaging in stock, options, non-U.S. currency, non-U.S. currency options, futures or options on futures on such currency, or any other derivatives based on such currency or related securities trading in an account which 11 See 12 See PO 00000 NYSE Arca Rules 6.8 and 6.9. NYSE Arca Rule 4.16. Frm 00096 Fmt 4703 Sfmt 4703 has not been reported in a manner prescribed by the Exchange. The Exchange represents that it has an adequate surveillance program in place for options on the Fund Shares, and intends to apply those same program procedures that it applies to options on Fund Shares currently traded on the Exchange. To comply with proposed NYSE Arca Rule 5.3(g)(2)(D), the Exchange may obtain trading information via the Intermarket Surveillance Group (‘‘ISG’’) from other exchanges who are members or affiliates of the ISG. Specifically, NYSE Arca can obtain such information from the Philadelphia Stock Exchange (‘‘Phlx’’) in connection with euro options trading on the Phlx and from the Chicago Mercantile Exchange (‘‘CME’’) and the London International Financial Futures Exchange (‘‘LIFFE’’) in connection with euro futures trading on those exchanges.13 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) 14 of the Act in general and furthers the objectives of Section 6(b)(5) 15 in particular in that it is designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market, and, in general, to protect investors and the public interest. In addition, the Exchange believes that, with the commencement of trading of a currency-based ETF of the NYSE, amending its rule to accommodate the listing and trading of options on publicly traded shares or other securities that hold investment assets consisting of foreign currency will benefit investors by providing them with the same valuable risk management tool that is currently available with respect to other publicly traded ETFs whose investment assets consist of securities. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. 13 Phlx is a member of ISG. CME and LIFFE are affiliate members of ISG. 14 15 U.S.C. 78f(b). 15 15 U.S.C. 78f(b)(5). E:\FR\FM\17NON1.SGM 17NON1 Federal Register / Vol. 71, No. 222 / Friday, November 17, 2006 / Notices IV. Commission’s Findings and Order Granting Accelerated Approval of the Proposed Rule Change After careful review, the Commission finds that the proposed rule change, as Written comments on the proposed amended, is consistent with the rule change were neither solicited nor requirements of the Act and the rules received. and regulations thereunder applicable to III. Solicitation of Comments a national securities exchange.16 In particular, the Commission finds that Interested persons are invited to the proposed rule change, as amended, submit written data, views, and is consistent with Section 6(b)(5) of the arguments concerning the foregoing, Act,17 which requires, among other including whether the proposed rule things, that the rules of an exchange be change, as amended, is consistent with the Act. Comments may be submitted by designed to prevent fraudulent and manipulative acts and practices, to any of the following methods: promote just and equitable principles of Electronic Comments trade, to remove impediments to and • Use the Commission’s Internet perfect the mechanism of a free and comment form (http://www.sec.gov/ open market and a national market system and, in general, to protect rules/sro.shtml); or • Send an e-mail to ruleinvestors and the public interest. Currently, the Exchange can list comments@sec.gov. Please include File Number SR–NYSEArca–2006–04 on the options on Fund Shares that represent an interest in a registered investment subject line. company organized as an open-end Paper Comments management investment company, a unit investment trust or a similar entity • Send paper comments in triplicate that holds securities constituting or to Nancy M. Morris, Secretary, otherwise based on or representing an Securities and Exchange Commission, investment in an index or portfolio of 100 F Street, NE., Washington, DC securities.18 The Exchange’s proposal 20549–1090. would allow it to list and trade options All submissions should refer to File on Fund Shares whose investment Number SR–NYSEArca–2006–04. This assets consist of a specified non-U.S. file number should be included on the 19 subject line if e-mail is used. To help the currency deposited with a trust. The underlying Fund Shares would Commission process and review your continue to need to satisfy the listing comments more efficiently, please use only one method. The Commission will standards in NYSE Arca Rule 5.3(g). post all comments on the Commission’s Specifically, the Fund Shares must be traded on a national securities Internet Web site (http://www.sec.gov/ exchange 20 and must be an ‘‘NMS rules/sro.shtml). Copies of the stock’’ as defined in Rule 600(b)(47) of submission, all subsequent Regulation NMS.21 The Fund Shares amendments, all written statements must also either: (1) meet the criteria with respect to the proposed rule and guidelines for underlying securities change that are filed with the set forth in NYSE Arca Rule 5.3(a) and Commission, and all written (b); or (2) be available for creation or communications relating to the redemption each business day in cash or proposed rule change between the in kind from or through the issuer at a Commission and any person, other than price related to NAV, and the issuer is those that may be withheld from the obligated to issue Fund Shares in a public in accordance with the specified aggregate number. The provisions of 5 U.S.C. 552, will be Commission notes that the Exchange available for inspection and copying in has represented that the expansion of the Commission’s Public Reference Room. Copies of such filing also will be 16 In approving this proposed rule change, the available for inspection and copying at Commission has considered the proposed rule’s impact on efficiency, competition, and capital the principal office of the NYSE Arca. formation. 15 U.S.C. 78c(f). All comments received will be posted 17 15 U.S.C. 78f(b)(5). without change; the Commission does 18 See NYSE Arca Rule 5.3(g). not edit personal identifying 19 For example, the Exchange’s proposed rule information from submissions. You change will permit the Exchange to list options on should submit only information that Euro Shares that are listed and traded on the NYSE you wish to make available publicly. All under the symbol ‘‘FXE.’’ See supra note 9. 20 The Commission notes that NYSE Arca is submissions should refer to File proposing to revise NYSE Arca Rule 5.3(g) to Number SR–NYSEArca–2006–04 and eliminate the current reference to trading through should be submitted on or before the facilities of a national securities association. 21 17 CFR 242.600(b)(47). December 8, 2006. jlentini on PROD1PC65 with NOTICES C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others VerDate Aug<31>2005 16:31 Nov 16, 2006 Jkt 211001 PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 67003 the types of investments that may be held by a Fund Share under NYSE Arca Rule 5.3(g) will not have any effect on the rules pertaining to position and exercise limits or margin.22 To accommodate the listing and trading of options on Fund Shares investing in non-U.S. currency, the Exchange proposes to amend Commentary .01 to NYSE Arca Rule 11.3 to require an OTP Holder or OTP Firm to establish, maintain, and enforce written policies and procedures designed to prevent the misuse of any material nonpublic information it might have or receive in a related security, option, or derivative security or in the applicable non-U.S. currency, non-U.S. currency options, futures or options on futures on such currency, or any other derivatives based on such currency. Further, the Exchange proposes to amend NYSE Arca Rule 6.39(a) and to add Commentary .02 to NYSE Arca Rule 11.16 to require that market makers handling options on Fund Shares provide the Exchange with all necessary information relating to their trading in the applicable non-U.S. currency, nonU.S. currency options, futures or options on futures on such currency, or any other derivatives based on such currency. The Commission believes that these requirements should minimize potential manipulation concerns. Finally, under the proposed change to NYSE Arca Rule 5.6(k), absent exceptional circumstances, Fund Shares would not be deemed to meet the requirements for continued approval, and the Exchange would not open for trading any additional series of option contracts of the class covering such Fund Shares, if the Fund Shares are delisted or, pursuant to the proposed rule change, trading in the Fund Shares is halted on their primary market. The Commission believes that the Exchange’s proposal to amend NYSE Arca Rule 5.6(k) addressing trading halts in the Fund Shares on their primary market is consistent with the protection of investors and the public interest. NYSE Arca Rule 5.6(k) also provides that the Exchange will consider the suspension of opening transactions in any series of options of the class covering Fund Shares if the value of the non-U.S. currency on which the Fund Shares are based is no longer calculated or available. The Commission believes that this change appropriately addresses the Exchange’s proposed broadened definition of Fund Shares to include Fund Shares that represent interests in a trust that holds a specified non-U.S. currency. 22 See E:\FR\FM\17NON1.SGM supra notes 11 and 12. 17NON1 67004 Federal Register / Vol. 71, No. 222 / Friday, November 17, 2006 / Notices The Exchange has represented that it has an adequate surveillance program in place for options on the Fund Shares, as defined by the Exchange’s proposal, and it intends to apply those same program procedures that it applies to options on Fund Shares currently traded on the Exchange. In addition, under proposed NYSE Arca Rule 5.3(g)(2)(D), before listing and trading options on Fund Shares based on a non-U.S. currency, the Exchange must have entered into an appropriate comprehensive surveillance sharing agreement with the applicable marketplace or marketplaces with last sale reporting that represent(s) the highest volume in derivatives (options or futures) on the specified non-U.S. currency. This provision means that the options exchange listing options on the Fund Shares must utilize the same comprehensive surveillance sharing arrangements utilized by the equity markets that list and trade the Fund Shares. Through its membership in the ISG, the Exchange is able to obtain trading information regarding trading of listed foreign currency derivative products from other marketplaces that are members or affiliates of the ISG. With respect to the Euro Shares, the Commission notes that the Exchange can obtain such information from the Phlx in connection with euro options trading on the Phlx and from the CME and the LIFFE in connection with euro futures trading on those exchanges.23 of the Act,26 to approve the proposed rule change, as amended, on an accelerated basis. V. Conclusion For the foregoing reasons, the Commission finds that the proposed rule change, as amended, is consistent with the Act and rules and regulations thereunder applicable to the national securities exchange. It is therefore ordered, pursuant to Section 19(b)(2) of the Act,27 that the proposed rule change (SR–NYSEArca2006–04), as amended, is hereby approved on an accelerated basis. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.28 Nancy M. Morris, Secretary. [FR Doc. E6–19418 Filed 11–16–06; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–54721; File No. SR–OCC– 2006–10] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of a Proposed Rule Change Relating to Cash-Settled Foreign Currency Options jlentini on PROD1PC65 with NOTICES Accelerated Approval November 8, 2006. The Commission finds good cause for approving the proposed rule change, as amended, prior to the thirtieth day after the date of publication of the notice of the filing thereof in the Federal Register pursuant to Section 19(b)(2) of the Act.24 The Exchange has requested accelerated approval of the proposed rule change. The proposal implements rules for the listing and trading of options on Fund Shares representing an interest in a specified non-U.S. currency that are substantially similar to listing standards recently adopted by the ISE.25 Inasmuch as options on Fund Shares are already listed and traded on other exchanges, the Commission does not believe that the Exchange’s proposal raises any novel regulatory issues. Granting accelerated approval to the proposal will enable the Exchange to immediately list and trade options on ETFs holding non-U.S. currency. Therefore, the Commission finds good cause, consistent with Section 19(b)(2) Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 notice is hereby given that on June 8, 2006, The Options Clearing Corporation (‘‘OCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) and on October 26, 2006, amended the proposed rule change as described in Items I, II, and III below, which items have been prepared primarily by OCC. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change would enable OCC to accommodate a request from the Philadelphia Stock Exchange, Inc. (‘‘Phlx’’) that OCC clear and settle cash-settled foreign currency options (‘‘Cash-Settled FCOs’’). 26 15 U.S.C. 78s(b)(2). id. 28 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 23 See supra note 13. 24 15 U.S.C. 78s(b)(2). 25 See supra note 6. VerDate Aug<31>2005 16:31 Nov 16, 2006 27 See Jkt 211001 PO 00000 Frm 00098 Fmt 4703 Sfmt 4703 II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, OCC included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. OCC has prepared summaries, set forth in sections (A), (B), and (C) below, of the most significant aspects of such statements.2 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change The purpose of the proposed rule change is to enable OCC to accommodate a request from the Philadelphia Stock Exchange, Inc. (‘‘Phlx’’) that OCC clear and settle CashSettled FCOs. OCC’s By-Laws and Rules currently provide for the clearance and settlement of Cash-Settled FCOs although no such options are currently traded, but changes to OCC’s By-Laws are needed in connection with the CashSettled FCOs proposed to be traded by Phlx.3 The first change is to reflect the different expiration date of the CashSettled FCOs as compared with the date provided for in OCC’s By-Laws. The definition of ‘‘expiration date’’ in Article XXII, Section 1 of OCC’s ByLaws provides that Cash-Settled FCOs generally expire on the Monday specified by the relevant exchange at or before trading begins. To accommodate the Cash-Settled FCOs proposed to be traded by Phlx, the definition will need to be amended to provide for an expiration date of the Saturday following the third Friday of the expiration month, which is the same as the expiration date for equity and index options. OCC is also proposing to provide for expirations on such other dates as an exchange may determine, which is consistent with the definition of ‘‘expiration date’’ applicable to index options. The next proposed change, to Article VI, Section 22 of OCC’s By-Laws, is intended to make it clear that CashSettled FCOs will not clear through OCC’s International Clearing System.4 2 The Commission has modified parts of these statements. 3 For a description of the Phlx proposed rule change, see Securities Exchange Act Release No. 54652 (October 26, 2006) 71 FR 64597 (November 2, 2006) [File No. SR–Phlx–2006–34]. 4 Interpretation .02 under Article VI, Section 22 of OCC’s By-Laws currently provides, ‘‘All classes of foreign currency options and cross-rate foreign currency options are cleared through ICS.’’ E:\FR\FM\17NON1.SGM 17NON1

Agencies

[Federal Register Volume 71, Number 222 (Friday, November 17, 2006)]
[Notices]
[Pages 66999-67004]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-19418]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54730; File No. SR-NYSEArca-2006-04]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Order Granting Accelerated Approval to Proposed Rule Change and 
Amendments No. 1, 2 and 3 Thereto Relating to the Criteria for 
Securities that Underlie Options Traded on the Exchange

 November 9, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on April 11, 2006, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. NYSE Arca filed Amendment No. 1 to 
the proposed rule change on August 18, 2006.\3\ NYSE Arca filed 
Amendment No. 2 to the proposed

[[Page 67000]]

rule change on October 17, 2006.\4\ NYSE Arca filed Amendment No. 3 to 
the proposed rule change on November 6, 2006.\5\ The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as amended, from interested persons and is approving the proposal on an 
accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 replaced the original filing in its 
entirety.
    \4\ Amendment No. 2 corrected certain minor, inadvertent 
omissions to the changes proposed in Amendment No. 1. In Amendment 
No. 2, NYSE Arca also clarified that Fund Shares must be traded on a 
national securities exchange pursuant to NYSE Arca Rule 5.3(g).
    \5\ Amendment No. 3 clarified the proposal, as earlier amended, 
and corrected certain minor, inadvertent omissions to the changes 
proposed in Amendments No. 1 and 2.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend NYSE Arca Rules 5.3(g), 5.6(k) and 
6.39(a), as well as the Commentary to NYSE Arca Rules 11.3 and 11.16, 
to enable the initial and continued listing and trading on the Exchange 
of options on shares or other securities (``Exchange-Traded Fund 
Shares'' or ``Fund Shares'') that represent an interest in a specified 
non-U.S. currency. The text of the proposed rule change is below. 
Additions are italicized, deletions are [bracketed].

Rules of the NYSE Arca, Inc.

RULE 5 OPTION CONTRACTS TRADED ON THE EXCHANGE

Section 2. Underlying Securities

* * * * *

Rule 5.3--Criteria for Underlying Securities

    (a)-(f)--No change.
    (g) Exchange-Traded Fund Shares. Securities deemed appropriate for 
options trading shall include shares or other securities (``Exchange-
Traded Fund Shares'' or ``Fund Shares'') that are [principally] traded 
on a national securities exchange [or through the facilities of a 
national securities association] and are defined as an ``NMS stock'' in 
Rule 600(b)(47) of Regulation NMS [reported as a national market 
security], and that (i) represent an interest in a registered 
investment company organized as an open-end management investment 
company, a unit investment trust or a similar entity which holds 
securities constituting or otherwise based on or representing an 
investment in an index or portfolio of securities, or (ii) represent 
interests in a trust that holds a specified non-U.S. currency deposited 
with the trust when aggregated in some specified minimum number may be 
surrendered to the trust by the beneficial owner to receive the 
specified non-U.S. currency and pays the beneficial owner interest and 
other distributions on the deposited non-U.S. currency, if any, 
declared and paid by the trust (``Funds''); provided:
(1)
    (A) the Exchange-Traded Fund Shares meet the criteria and 
guidelines for underlying securities set forth in Rule 5.3(a) and (b); 
or
    (B) the Exchange-Traded Fund Shares must be available for creation 
or redemption each business day in cash or in kind from or through the 
issuing trust, investment company or other entity [the investment 
company] at a price related to the net asset value. In addition, the 
issuer [investment company] is obligated [shall provide that] to issue 
Fund Shares in a specified aggregate number [fund shares may be 
created] even though some or all of the investment assets [securities] 
needed to be deposited have not been received by the issuer [unit 
investment trust or the management investment company], provided the 
authorized creation participant has undertaken to deliver the 
investment assets [shares] as soon as possible and such undertaking has 
been secured by the delivery and maintenance of collateral consisting 
of cash or cash equivalents satisfactory to the issuer of Fund Shares 
[fund] which underlie[s] the option as described in the Fund Shares' 
[fund or unit trust] prospectus; and
(2)
    (A) any non-U.S. component securities (including fixed-income) in 
an [the] index or portfolio of securities on which the Fund Shares are 
based that are not subject to comprehensive surveillance agreements do 
not in the aggregate represent more than 50% of the weight of the index 
or portfolio;
    (B) component securities (including fixed-income) of an index or 
portfolio of securities on which Fund Shares are based for which the 
primary market is in any one country that is not subject to a 
comprehensive surveillance agreement do not represent 20% or more of 
the weight of the index; [and]
    (C) component securities (including fixed-income) of an index or 
portfolio of securities on which Fund Shares are based for which the 
primary market is in any two countries that are not subject to 
comprehensive surveillance agreements do not represent 33% or more of 
the weight of the index; and[.]
    (D) for Funds that hold a specified non-U.S. currency deposited 
with the trust, the Exchange has entered into an appropriate 
comprehensive surveillance sharing agreement with the marketplace or 
marketplaces with last sale reporting that represent(s) the highest 
volume in derivatives (options or futures) on the specified non-U.S. 
currency, which are utilized by the national securities exchange where 
the underlying Funds are listed and traded.
    (h)--No change.
* * * * *

Rule 5.6--Withdrawal of Approval of Underlying Securities

    (a)-(j)--No change.
    (k) Absent exceptional circumstances, securities initially approved 
for options trading pursuant to Rule 5.3(g) (such securities are 
defined and referred to in that [Commentary] rule as ``Exchange-Traded 
Fund S[s]hares'' or ``Fund Shares'') shall not be deemed to meet the 
Exchange's requirements for continued approval, and the exchange shall 
not open for trading any additional series of option contracts of the 
class covering such Exchange-Traded Fund Shares, whenever the Exchange-
Traded Fund Shares are delisted as provided in subparagraph (b)(5) or 
[and] trading in the Fund Shares is [suspended] halted on their primary 
market [a national securities exchange, or the Exchange-Traded Fund 
Shares are no longer traded as national market securities through the 
facilities of a national securities association]. In addition, the 
Exchange shall consider the suspension of opening transactions in any 
series of options of the class covering Exchange-Traded Fund Shares in 
any of the following circumstances:
    (1) In accordance with the terms of paragraphs 1 through [7]4 of 
Rule 5.6(b) in the case of options covering Exchange-Traded Fund Shares 
when such options were approved pursuant to Rule 5.3(g)(1)(A).
    (2) In the case of options covering Exchange-Traded Fund Shares 
approved pursuant to Rule 5.3(g)(1)(B), [F]following the initial 
twelve-month period beginning upon the commencement of trading of the 
Exchange-Traded Fund Shares on a national securities exchange [or as 
national market securities through the facilities of a national market 
association] and are defined as an ``NMS stock'' in Rule 600(b)(47) of 
Regulation NMS, there are fewer than 50 record and/or beneficial 
holders of such Exchange-Traded Fund Shares for 30 or more consecutive 
trading days;
    (3) The value of the index or portfolio of securities or non-U.S. 
currency on which the Exchange-Traded Fund Shares are based is no 
longer calculated or available; or

[[Page 67001]]

    (4) Such other event shall occur or condition exist that in the 
opinion of the Exchange makes further dealing in such options on the 
Exchange inadvisable.
    (l)--No change.

Commentary:

    .01--No change.
* * * * *

RULE 6 OPTIONS TRADING

Rule 6.39--Securities Accounts and Orders of Market Makers

    (a) Identification of Accounts [Upon Request]. A Lead Market Maker 
in the Fund Shares, as defined in Rule 5.3(g), is obligated to conduct 
all trading in the Fund Shares in account(s) that have been reported to 
the Exchange. In addition, [I]in a manner prescribed by the Exchange, 
each Market Maker shall [upon request] file with the Exchange a list 
identifying all accounts for stock, options, non-U.S. currency, non-
U.S. currency options, futures or options on futures on such currency, 
or any other derivatives based on such currency and related securities 
trading in which the Market Maker may directly or indirectly engage in 
trading activities or over which the Market Maker exercises investment 
discretion. No Market Maker shall engage in stock, options, non-U.S. 
currency, non-U.S. currency options, futures or options on futures on 
such currency, or any other derivatives based on such currency or 
related securities trading in an account that has not been reported 
pursuant to this Rule.
    (b)--No change.

Commentary:

    .01--No change.
* * * * *

RULE 11 BUSINESS CONDUCT

Rule 11.3--Prevention of the Misuse of Material, Nonpublic Information

    (a)-(b)--No change.

Commentary:

    .01 For purposes of Rule 11.3, conduct constituting the misuse of 
material, non-public information includes, but is not limited to, the 
following:
    A. Trading in any securities issued by a corporation or Funds, as 
defined in Rule 5.3(g), or a trust or similar entities, or in any 
related securities or related options or other derivative securities, 
or in any related non-U.S. currency, non-U.S. currency options, futures 
or options on futures on such currency, or any other derivatives based 
on such currency while in possession of material, non-public 
information concerning that issuer; or
    B. Trading in a security or related options or other derivative 
securities, or in any related non-U.S. currency, non-U.S. currency 
options, futures or options on futures on such currency, or any other 
derivatives based on such currency while in possession of material non-
public information concerning imminent transactions in the above 
[security or related securities]; or
    C. Disclosing to another person or entity any material, non-public 
information involving a corporation or Funds or a trust or similar 
entities whose shares are publicly traded or an imminent transaction in 
an underlying security or related securities or in the underlying non-
U.S. currency, or any related non-U.S. currency options, futures or 
options on futures on such currency, or any other derivatives based on 
such currency for the purpose of facilitating the possible misuse of 
such material, non-public information.
    .02-.03--No change.
* * * * *

Rule 11.16--Books and Records

    (a)--No change.

Commentary:

    .01--No change.
    .02 In addition to the existing obligations under Exchange rules 
regarding the production of books and records, a Lead Market Maker in 
non-U.S. currency, non-U.S. currency options, futures or options on 
futures on such currency, or any other derivatives based on such 
currency, shall make available to the Exchange such books, records or 
other information pertaining to transactions in the applicable non-U.S. 
currency, non-U.S. currency options, futures or options on futures on 
such currency, or any other derivatives on such currency, as may be 
requested by the Exchange.
    (b)--No change.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the NYSE Arca included 
statements concerning the purpose of, and basis for, the proposed rule 
change and discussed any comments it received on the proposed rule 
change. The text of these statements may be examined at the places 
specified in Item III below. The NYSE Arca has prepared summaries, set 
forth in Sections A, B, and C below, of the most significant aspects of 
such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this proposed rule change is to amend NYSE Arca 
Rules 5.3(g), 5.6(k) and 6.39(a), as well as the Commentary to NYSE 
Arca Rules 11.3 and 11.16, to enable the initial and continued listing 
and trading on the Exchange of options on shares of exchange-traded 
funds (``ETFs'') that hold a specified non-U.S. currency. The proposed 
rule change is based on the rule proposal of the International 
Securities Exchange (``ISE''), which was approved by the Commission.\6\
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 54087 (June 30, 
2006), 71 FR 38918 (July 10, 2006) (SR-ISE-2005-60).
---------------------------------------------------------------------------

    Currently, the term ``Exchange-Traded Fund Shares,'' as defined 
under NYSE Arca Rule 5.3(g), requires that the investment assets held 
by a registered investment company organized as an open-end management 
investment company, a unit investment trust or a similar entity consist 
of securities constituting or otherwise based on or representing an 
investment in an index or portfolio of securities. As proposed, amended 
NYSE Arca Rule 5.3(g) would also permit the investment assets to 
consist of a trust that holds a specified non-U.S. currency deposited 
with the trust.
    In particular, the proposed amendment to NYSE Arca Rule 5.3(g) 
would permit the Exchange to list options on the euro shares 
(``Shares'' or ``Euro Shares'') \7\ issued by the Euro Currency Trust 
(``Trust'') \8\ and other similarly structured currency-based products, 
which function as an ETF, whose Shares reflect the price of a 
particular foreign currency and whose assets are limited to a 
particular foreign currency. The Shares may be purchased from the Trust 
only in one or more blocks of 50,000 Shares, as described in the 
prospectus under ``Creation and Redemption of Shares.'' A block of 
50,000 shares is called a Basket. The Trust issues Shares in Baskets on 
a continuous basis to certain authorized participants (``Authorized 
Participants'') as described in the prospectus under ``Plan of 
Distribution.'' Each Basket, when created, is offered and sold to an 
Authorized Participant at a price in euro

[[Page 67002]]

equal to the net asset value (``NAV'') for 50,000 Shares on the day 
that the order to create the Basket is accepted by the Trustee.
---------------------------------------------------------------------------

    \7\ The Shares trade on the New York Stock Exchange (``NYSE'') 
under the symbol ``FXE.'' The Shares may also trade in other 
markets.
    \8\ The Exchange notes that the Trust is not a registered 
investment company under the Investment Company Act of 1940 (the 
``1940 Act'') and is not required to register under the 1940 Act.
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    The Exchange believes that permitting options on foreign currency-
based Fund Shares to be traded on the Exchange is consistent with the 
Commission's recent approval order of a rule change filed by the NYSE 
to list and trade the Shares.\9\ This rule change to NYSE Arca's 
listing criteria for Fund Shares is intended to provide appropriate 
listing standards for options on the Shares and similar types of 
foreign currency-based Fund Shares that may be listed in the future.
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 52843 (November 28, 
2005), 70 FR 72486 (December 5, 2005) (SR-NYSE-2005-65).
---------------------------------------------------------------------------

    For options trading, the underlying Fund Shares will continue to 
need to satisfy the listing standards in NYSE Arca Rule 5.3(g). 
Specifically, the Fund Shares must be traded on a national securities 
exchange and must be an ``NMS stock'' as defined in Rule 600(b)(47) of 
Regulation NMS.\10\ The Fund Shares must also either: (1) Meet the 
criteria and guidelines for underlying securities set forth in NYSE 
Arca Rule 5.3(a) and (b); or (2) be available for creation or 
redemption each business day in cash or in kind from or through the 
issuer at a price related to NAV, and the issuer is obligated to issue 
Fund Shares in a specified aggregate number even though some or all of 
the investment assets needed to be deposited have not been received by 
the issuer, subject to the condition that the authorized creation 
participant has undertaken to deliver the investment assets as soon as 
possible, and such undertaking is secured by the delivery and 
maintenance of collateral consisting of cash or cash equivalents 
satisfactory to the issuer, as described in the prospectus. Proposed 
NYSE Arca Rule 5.3(g)(2)(D) provides that ``for Funds that hold a 
specified non-U.S. currency deposited with the trust, the Exchange has 
entered into an appropriate comprehensive surveillance sharing 
agreement with the marketplace or marketplaces with last sale reporting 
that represent(s) the highest volume in derivatives (options or 
futures) on the specified non-U.S. currency, which are utilized by the 
national securities exchange where the underlying Funds are listed and 
traded.'' The Exchange is also proposing to make other conforming 
changes to the text of NYSE Arca Rule 5.3(g) to reflect the proposed 
broadened definition of Fund Shares.
---------------------------------------------------------------------------

    \10\ In light of the implementation of certain aspects of 
Regulation NMS, the Exchange hereby seeks to amend NYSE Arca Rule 
5.3(g) to reflect that Exchange-Traded Fund Shares must be NMS 
stocks as defined in Rule 600(b)(47) of Regulation NMS instead of 
``national market'' securities. The Exchange also seeks to amend 
NYSE Arca Rule 5.6(k), the maintenance rule for Exchange-Traded Fund 
Shares, to delete obsolete references contained therein.
---------------------------------------------------------------------------

    Under NYSE Arca Rule 5.6(k), the Exchange will not open for trading 
any additional series of option contracts of a class covering Fund 
Shares whenever the Fund Shares are delisted or trading in the Fund 
Shares is halted on the primary market. In addition, the Exchange will 
consider the suspension of opening transactions in any series of 
options of the class covering Fund Shares as follows: (1) Following the 
initial twelve-month period beginning upon the commencement of trading 
of the Fund Shares, there are fewer than 50 record and/or beneficial 
holders of the Fund Shares for 30 or more consecutive trading days; (2) 
the value of the non-U.S. currency is no longer calculated or 
available; or (3) such other event occurs or condition exists that in 
the opinion of the Exchange makes further dealing on the Exchange 
inadvisable.
    The Exchange represents that the expansion of the types of 
investments that may be held by a Fund Share under NYSE Arca Rule 
5.3(g) will not have any effect on the rules pertaining to position and 
exercise limits \11\ or margin.\12\
---------------------------------------------------------------------------

    \11\ See NYSE Arca Rules 6.8 and 6.9.
    \12\ See NYSE Arca Rule 4.16.
---------------------------------------------------------------------------

    The Exchange is also proposing to amend Commentary .01 to NYSE Arca 
Rule 11.3 to require an OTP Holder or OTP Firm to establish, maintain, 
and enforce written policies and procedures designed to prevent the 
misuse of any material nonpublic information it might have or receive 
in a related security, option, or derivative security or in the 
applicable non-U.S. currency, non-U.S. currency options, futures or 
options on futures on such currency, or any other derivatives based on 
such currency. Finally, the Exchange is proposing to amend NYSE Arca 
Rule 6.39(a) and to add Commentary .02 to NYSE Arca Rule 11.16 to 
require that market makers handling options on Fund Shares provide the 
Exchange with all necessary information relating to their trading in 
the applicable non-U.S. currency, non-U.S. currency options, futures or 
options on futures on such currency, or any other derivatives based on 
such currency. In addition, proposed NYSE Arca Rule 6.39(a) would 
prohibit market makers from engaging in stock, options, non-U.S. 
currency, non-U.S. currency options, futures or options on futures on 
such currency, or any other derivatives based on such currency or 
related securities trading in an account which has not been reported in 
a manner prescribed by the Exchange.
    The Exchange represents that it has an adequate surveillance 
program in place for options on the Fund Shares, and intends to apply 
those same program procedures that it applies to options on Fund Shares 
currently traded on the Exchange. To comply with proposed NYSE Arca 
Rule 5.3(g)(2)(D), the Exchange may obtain trading information via the 
Intermarket Surveillance Group (``ISG'') from other exchanges who are 
members or affiliates of the ISG. Specifically, NYSE Arca can obtain 
such information from the Philadelphia Stock Exchange (``Phlx'') in 
connection with euro options trading on the Phlx and from the Chicago 
Mercantile Exchange (``CME'') and the London International Financial 
Futures Exchange (``LIFFE'') in connection with euro futures trading on 
those exchanges.\13\
---------------------------------------------------------------------------

    \13\ Phlx is a member of ISG. CME and LIFFE are affiliate 
members of ISG.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) \14\ of the Act in general and furthers the 
objectives of Section 6(b)(5) \15\ in particular in that it is designed 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market, and, in general, to protect 
investors and the public interest. In addition, the Exchange believes 
that, with the commencement of trading of a currency-based ETF of the 
NYSE, amending its rule to accommodate the listing and trading of 
options on publicly traded shares or other securities that hold 
investment assets consisting of foreign currency will benefit investors 
by providing them with the same valuable risk management tool that is 
currently available with respect to other publicly traded ETFs whose 
investment assets consist of securities.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

[[Page 67003]]

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments on the proposed rule change were neither solicited 
nor received.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2006-04 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2006-04. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/
rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Room. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the NYSE Arca. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-NYSEArca-2006-04 and should be submitted on or before 
December 8, 2006.

IV. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\16\ In particular, the Commission finds that the 
proposed rule change, as amended, is consistent with Section 6(b)(5) of 
the Act,\17\ which requires, among other things, that the rules of an 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system and, in general, to protect investors and the 
public interest.
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    \16\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \17\ 15 U.S.C. 78f(b)(5).
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    Currently, the Exchange can list options on Fund Shares that 
represent an interest in a registered investment company organized as 
an open-end management investment company, a unit investment trust or a 
similar entity that holds securities constituting or otherwise based on 
or representing an investment in an index or portfolio of 
securities.\18\ The Exchange's proposal would allow it to list and 
trade options on Fund Shares whose investment assets consist of a 
specified non-U.S. currency deposited with a trust.\19\
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    \18\ See NYSE Arca Rule 5.3(g).
    \19\ For example, the Exchange's proposed rule change will 
permit the Exchange to list options on Euro Shares that are listed 
and traded on the NYSE under the symbol ``FXE.'' See supra note 9.
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    The underlying Fund Shares would continue to need to satisfy the 
listing standards in NYSE Arca Rule 5.3(g). Specifically, the Fund 
Shares must be traded on a national securities exchange \20\ and must 
be an ``NMS stock'' as defined in Rule 600(b)(47) of Regulation 
NMS.\21\ The Fund Shares must also either: (1) meet the criteria and 
guidelines for underlying securities set forth in NYSE Arca Rule 5.3(a) 
and (b); or (2) be available for creation or redemption each business 
day in cash or in kind from or through the issuer at a price related to 
NAV, and the issuer is obligated to issue Fund Shares in a specified 
aggregate number. The Commission notes that the Exchange has 
represented that the expansion of the types of investments that may be 
held by a Fund Share under NYSE Arca Rule 5.3(g) will not have any 
effect on the rules pertaining to position and exercise limits or 
margin.\22\
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    \20\ The Commission notes that NYSE Arca is proposing to revise 
NYSE Arca Rule 5.3(g) to eliminate the current reference to trading 
through the facilities of a national securities association.
    \21\ 17 CFR 242.600(b)(47).
    \22\ See supra notes 11 and 12.
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    To accommodate the listing and trading of options on Fund Shares 
investing in non-U.S. currency, the Exchange proposes to amend 
Commentary .01 to NYSE Arca Rule 11.3 to require an OTP Holder or OTP 
Firm to establish, maintain, and enforce written policies and 
procedures designed to prevent the misuse of any material nonpublic 
information it might have or receive in a related security, option, or 
derivative security or in the applicable non-U.S. currency, non-U.S. 
currency options, futures or options on futures on such currency, or 
any other derivatives based on such currency. Further, the Exchange 
proposes to amend NYSE Arca Rule 6.39(a) and to add Commentary .02 to 
NYSE Arca Rule 11.16 to require that market makers handling options on 
Fund Shares provide the Exchange with all necessary information 
relating to their trading in the applicable non-U.S. currency, non-U.S. 
currency options, futures or options on futures on such currency, or 
any other derivatives based on such currency. The Commission believes 
that these requirements should minimize potential manipulation 
concerns.
    Finally, under the proposed change to NYSE Arca Rule 5.6(k), absent 
exceptional circumstances, Fund Shares would not be deemed to meet the 
requirements for continued approval, and the Exchange would not open 
for trading any additional series of option contracts of the class 
covering such Fund Shares, if the Fund Shares are delisted or, pursuant 
to the proposed rule change, trading in the Fund Shares is halted on 
their primary market. The Commission believes that the Exchange's 
proposal to amend NYSE Arca Rule 5.6(k) addressing trading halts in the 
Fund Shares on their primary market is consistent with the protection 
of investors and the public interest. NYSE Arca Rule 5.6(k) also 
provides that the Exchange will consider the suspension of opening 
transactions in any series of options of the class covering Fund Shares 
if the value of the non-U.S. currency on which the Fund Shares are 
based is no longer calculated or available. The Commission believes 
that this change appropriately addresses the Exchange's proposed 
broadened definition of Fund Shares to include Fund Shares that 
represent interests in a trust that holds a specified non-U.S. 
currency.

[[Page 67004]]

    The Exchange has represented that it has an adequate surveillance 
program in place for options on the Fund Shares, as defined by the 
Exchange's proposal, and it intends to apply those same program 
procedures that it applies to options on Fund Shares currently traded 
on the Exchange. In addition, under proposed NYSE Arca Rule 
5.3(g)(2)(D), before listing and trading options on Fund Shares based 
on a non-U.S. currency, the Exchange must have entered into an 
appropriate comprehensive surveillance sharing agreement with the 
applicable marketplace or marketplaces with last sale reporting that 
represent(s) the highest volume in derivatives (options or futures) on 
the specified non-U.S. currency. This provision means that the options 
exchange listing options on the Fund Shares must utilize the same 
comprehensive surveillance sharing arrangements utilized by the equity 
markets that list and trade the Fund Shares. Through its membership in 
the ISG, the Exchange is able to obtain trading information regarding 
trading of listed foreign currency derivative products from other 
marketplaces that are members or affiliates of the ISG. With respect to 
the Euro Shares, the Commission notes that the Exchange can obtain such 
information from the Phlx in connection with euro options trading on 
the Phlx and from the CME and the LIFFE in connection with euro futures 
trading on those exchanges.\23\
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    \23\ See supra note 13.
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Accelerated Approval

    The Commission finds good cause for approving the proposed rule 
change, as amended, prior to the thirtieth day after the date of 
publication of the notice of the filing thereof in the Federal Register 
pursuant to Section 19(b)(2) of the Act.\24\ The Exchange has requested 
accelerated approval of the proposed rule change. The proposal 
implements rules for the listing and trading of options on Fund Shares 
representing an interest in a specified non-U.S. currency that are 
substantially similar to listing standards recently adopted by the 
ISE.\25\ Inasmuch as options on Fund Shares are already listed and 
traded on other exchanges, the Commission does not believe that the 
Exchange's proposal raises any novel regulatory issues. Granting 
accelerated approval to the proposal will enable the Exchange to 
immediately list and trade options on ETFs holding non-U.S. currency. 
Therefore, the Commission finds good cause, consistent with Section 
19(b)(2) of the Act,\26\ to approve the proposed rule change, as 
amended, on an accelerated basis.
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    \24\ 15 U.S.C. 78s(b)(2).
    \25\ See supra note 6.
    \26\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change, as amended, is consistent with the Act and rules and 
regulations thereunder applicable to the national securities exchange.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\27\ that the proposed rule change (SR-NYSEArca-2006-04), as 
amended, is hereby approved on an accelerated basis. 
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    \27\ See id.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E6-19418 Filed 11-16-06; 8:45 am]
BILLING CODE 8011-01-P